News

By Matt Tracy

(Reuters) -U.S. corporate bond market issuances have dried up after opening for just one bond offering on Tuesday, as spreads in the week after President Donald Trump's sweeping tariffs widened the most since the 2023 regional banking crisis.

Since Trump's tariff announcements exactly one week ago on April 2, corporate bond spreads, or the cost to borrow, have widened to their highest levels in nearly two years.

Both investment-grade and junk bond spreads have seen the most one-week widening since the regional banking stress in March 2023 that resulted in the collapse of Silicon Valley Bank and other banks, according to Dan Krieter, director of fixed income strategy at BMO Capital Markets.

The bond market's first new deal in three days occurred on Tuesday, a $4.2 billion, three-part transaction from human resources provider Paychex. It was the first deal since Swiss cement maker Holcim's four-part, $3.4 billion issuance on April 2.

High-grade bond spreads tightened 2 basis points on Tuesday and last sat at 118 bps as of market close, according to the ICE BofA indexes. Junk bond spreads were 4 bps tighter at 457 bps.

But both the high-grade and junk bond spreads may have widened again on Wednesday morning, driven in part by early morning U.S. Treasury market volatility, as Chinese and other Asian funds offloaded Treasuries in high volumes.

One senior syndicate banker said Paychex's bonds were trading a couple of basis points tighter at the start of the day but then were quoting 3-4 bps wider by midday.

Benchmark 10-year U.S. Treasury note yields jumped to a seven-week high 4.515% on Wednesday.

"Risk sentiment is once again sharply lower this morning, likely keeping any borrowers on the sidelines as issuers continue to wait for any semblance of calm that remains elusive," said Krieter.

Some five to six investment-grade companies were looking to issue early in the day, but decided to stay on the sidelines after seeing the volatility, according to the syndicate banker.

There were few signs of panic among investors in lower-risk debt securities.

"I don't think that anyone can say with any confidence how this is going to play out," said Natalie Trevithick, head of IG strategy at Los Angeles-based investment management firm Payden & Rygel.

"But it feels like the spread widening has finally caught up with the equity rally we saw earlier, and I'd say we might get a little bit of stabilization ... On a positive note, there is a lot of money sitting on the sidelines."

A closely watched Treasury auction of $39 billion in 10-year notes came in within market expectations on Wednesday. They priced at a high yield of 4.435% that was lower than forecasts and suggests strong investor demand.

Treasury yields popped on Wednesday afternoon after Trump announced a 90-day tariff pause effective immediately on most countries except China, which he said would see a rise in duties to 125%. Ten-year Treasury yields were last at 4.362%.

"This pause may provide companies with a clearer backdrop for their guidance, offering some relief to a market hungry for direction," said Gina Bolvin, president of Boston-based wealth manager Bolvin Wealth Management Group.

"However, uncertainty looms over what happens after the 90-day period, leaving investors to grapple with potential volatility ahead."